Retirement Savings Low on Priority List

While the recession, followed by a moribund recovery, may have imperiled Americans' future retirements, market volatility is not the only culprit. A new survey from Bankrate.com has found that many Americans have curtailed or decreased contributions to their retirement savings accounts this year compared to a year ago.

Nearly 3 in 10 employed Americans (28%) are saving less for retirement than they did the year before, while 15% are saving more and 48% are saving about the same amount.

Time Is of The Essence

In the best of times, most people are woefully underprepared for retirement. Clearly these are not the best of times for everyone, which puts retirement savings even further behind the curve. With no quick solution to the economic malaise on the horizon, it may be time for many people to downsize their lifestyles to save money.

The key to amassing a substantial sum for retirement is consistent saving and investing over time. With millions of Americans out of work and the economic doldrums occupying the nation's collective psyche, more people are focusing on survival rather than planning for the future.

This leads to a new set of worries. Nearly half of Americans, 47%, report feeling less comfortable with their level of savings than they did one year ago. That's up considerably from a low in May -- just three months ago -- of 35% reporting discomfort with their level of savings.

"They probably feel that they don't have the ability to save because either they fear being out of work or maybe their spouse is out of work. These are tough times," says John Burke, CFP, owner of Burke Financial Strategies in Iselin, N.J.

Trade-Offs in Financial Decisions

"People could have decreased their savings to pay off more debt," says Robert Fuest, COO and head of investment research at Landor & Fuest Capital Managers in New York.

Data from the Federal Reserve indicate that Americans have succeeded in reducing household debt burdens. The household debt service ratio illustrates the relationship between debt payments to disposable personal income. It peaked at 13.95 in the third quarter of 2007 and fell to 11.51 in the first quarter of 2011.

Unfortunately, servicing debt requires resources that could be allocated elsewhere -- for instance, for an emergency fund or your future retirement. Households have a finite amount of money that must be directed toward many different obligations, and the decisions are difficult when Americans are feeling squeezed.

"I would have expected the 'saving less' number to be higher," says Dan Yu, managing director and lead retirement expert of EisnerAmper's wealth division in New York. "There is so much pressure everywhere else on people. Just making ends meet can be difficult for some people these days with all of the constraints that we're dealing with."

Rejigger the Priority List

You've heard the motto, "Pay yourself first." When the financial going gets tough, the first thing people do is stop paying themselves. While the wisdom of that strategy is questionable -- after all, a perfect credit rating won't finance retirement -- retirement savings needn't be cut off altogether. But the definition of wants versus needs may have to undergo change.

"Make a list of everything you spend money on and then rank it in terms of importance to you," says Burke. "Food will be at the top, certainly." Burke suggests also putting savings near the very top, and cutting a bit from the least important expenses to make sure there's enough money to fund it.

Every expense is a choice, "but the worst choice is to be 50 or 55 and not have any money saved for retirement," he says.

If circumstances force you to decrease the amount you're saving, at least try to save something, implore the experts.

"If you have a job, you can put money away. It really comes down to budget constraints," says Yu.

"When times are hard and you can barely make ends meet, 2% of your income is not going to make that big a difference. Frankly, you'll be able to reduce income tax by a bit if you can do more (saving)," he says.

Make Saving Less Taxing

Only contributions to a traditional IRA or conventional 401(k) or 403(b) are made before taxes. For contributions to a Roth IRA or Roth 401(k), taxable income will not be reduced in the year the contributions are made. Instead contributions and earnings can grow unfettered and be withdrawn tax-free in retirement.

By prioritizing spending and cutting monthly expenses, families may be able to save while meeting other objectives. But savers will have their work cut out for them as they get older.

"For those who are more mature and deeper in their careers, I would forewarn them that sometimes you have to give up current pleasures to be assured of having a comfortable retirement. For instance, if that means not going on an extravagant vacation, you may want to make those compromises," says Yu.

Savers who start early have a distinct advantage over late bloomers, but whether you've been saving since age 25 or just starting at 35 or even 40, retirement savings need to aggressively increase with age.

"Between the ages of 35 and 45 they should really be maximizing all of their retirement accounts: maxing out the IRA or 403(b) or 401(k). I think if someone is earning $100,000 they should be saving the maximum in their retirement plan," says Fuest.

That recommendation can be scaled down for people with lower incomes. For instance, someone with an income of $50,000 could aim for contributing half the maximum every year.

In 2011, the maximum you can contribute to a 401(k) or 403(b) is $16,500, whether in pretax or after-tax accounts. Those 50 and older can add $5,500 to that amount for a total contribution of $22,000. The contribution limit for IRAs is $5,000; $6,000 for those 50 and older.

Plan Now Rather Than Later

No matter how much money you earn, increasing your retirement savings could take some budgetary strategizing. In good times and bad times, tracking spending and making prudent choices can lead to a more fruitful retirement down the road.

Besides Social Security and the unpopular option of literally working yourself to death, Americans have frighteningly few options for their retirement years if they neglect to plan during their careers. As uncomfortable as the present economic environment is, being forced to work into your 80s could prove more disturbing.

Bankrate.com's Financial Security Index dropped to 92.3, the lowest level measured since the monthly poll commenced in December. The accompanying slideshow offers detailed results of the latest FSI survey. Check out the advice and analyses by selected experts to help you manage your money optimally during these times of uncertainty.

Bankrate's Financial Security Index survey was conducted by Princeton Survey Research Associates International from Aug. 4-7, 2011. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error is �3.7 percentage points overall (�5.1 percentage points for employed adults). Click here for a copy of the PDF file.